B-123101, JULY 25, 1955, 35 COMP. GEN. 43

B-123101, JULY 25, 1955, 35 COMP. GEN. 43

CONTRACTS - LIQUIDATED DAMAGES - DELIVERY DELAYS - PUNITIVE DAMAGES - CONTRACT AMBIGUITIES WHERE A CONTRACT FOR DELIVERY OF A RADIOTELEPHONE COMMUNICATIONS SYSTEM, TOGETHER WITH SPARE PARTS, WAS AMBIGUOUS AS TO THE EXACT NUMBER OF PARTS CALLED FOR AND THE ADMINISTRATIVE AGENCY DELAYED NEARLY A YEAR IN ADVISING THE CONTRACTOR THAT CERTAIN ADDITIONAL PARTS WOULD BE REQUIRED, LIQUIDATED DAMAGES FOR PERIOD OF THIS DELAY, WHICH WOULD MAKE THE CONTRACTOR LIABLE FOR AN AMOUNT WELL OVER HALF OF THE TOTAL AMOUNT OF THE CONTRACT, MAY NOT BE ASSESSED. WHERE CONTRACT FOR DELIVERY OF A RADIOTELEPHONE COMMUNICATIONS SYSTEM, TOGETHER WITH SPARE PARTS, REQUIRED DELIVERY OF SPARE PARTS WITHIN 55 DAYS FOLLOWING AWARD AND THE TERMS OF THE CONTRACT WERE CHANGED TO REQUIRE NOT ONLY DELIVERY OF THE SYSTEM BUT ALSO INSTALLATION, LIQUIDATED DAMAGES FOR DELIVERY OF SPARE PARTS AFTER THE TIME SPECIFIED IN THE CONTRACT BUT PRIOR TO INSTALLATION MAY NOT BE ASSESSED.

TO THE CHAIRMAN, UNITED STATES ATOMIC ENERGY COMMISSION, JULY 25, 1955:

REFERENCE IS MADE TO LETTER DATED MARCH 1, 1955, FROM THE GENERAL MANAGER OF THE ATOMIC ENERGY COMMISSION, REQUESTING A DECISION WHETHER LIQUIDATED DAMAGES SHOULD BE ASSESSED AGAINST THE GENERAL ELECTRIC COMPANY IN CONNECTION WITH CERTAIN SPARE PARTS DELIVERED UNDER CONTRACT NO. AT/10-1/- 319 DATED APRIL 20, 1951.

INVITATIONS WERE ISSUED ON JANUARY 26, 1951, FOR A COMPLETE MULTIPLE NET RADIO TELEPHONE COMMUNICATIONS SYSTEM TO BE FURNISHED TO AN AEC INSTALLATION IN IDAHO. THE INVITATIONS CALLED FOR DELIVERY OF THE SYSTEM, TOGETHER WITH SPARE PARTS, BUT NOT FOR INSTALLATION. TWO BIDS WERE RECEIVED, BOTH OF WHICH WERE REJECTED. NEGOTIATIONS WERE THEN CONDUCTED WITH BOTH BIDDERS AND A CONTRACT FINALLY WAS AWARDED TO THE GENERAL ELECTRIC COMPANY UNDER DATE OF APRIL 20, 1951, FOR DELIVERY OF THE SYSTEM AND SPARE PARTS, AND ALSO FOR ITS INSTALLATION. DESPITE THE FACT THAT COMPLETION OF INSTALLATION WAS NOT REQUIRED UNTIL NOVEMBER 1, 1951, THE CONTRACT CALLED FOR DELIVERY OF THE SYSTEM AND MOST OF THE SPARE PARTS IN 55 DAYS, OR BY JUNE 17, 1951, AS ORIGINALLY PROVIDED IN THE INVITATION. THE CONTRACT CONTAINED THE GENERAL PROVISIONS FOR SUPPLY CONTRACTS ( STANDARD FORM 32), INCLUDING THE " DEFAULT" CLAUSE, ARTICLE 11. ADDITION, ITEM 6 OF THE CONTRACT PROVIDED FOR LIQUIDATED DAMAGES OF $50 FOR EACH CALENDAR DAY OF DELAY "UNTIL DELIVERY OF ALL ITEMS IS COMPLETE.'

THE SYSTEM WAS DELIVERED, INSTALLED, AND PUT IN OPERATION BEFORE NOVEMBER 1, 1951, MANY OF THE SPARE PARTS BEING DELIVERED IN AUGUST 1951. MINOR OPERATING DIFFICULTIES WERE CORRECTED BY THE CONTRACTOR AFTER NOVEMBER 1, 1951, UNDER THE PERFORMANCE GUARANTEE OF THE CONTRACT. BY LETTER OF OCTOBER 19, 1951, THE CONTRACTOR STATED TO THE AEC THAT IT BELIEVED IT HAD ACCOMPLISHED DELIVERY AND INSTALLATION WITHIN THE TIME ALLOWED BY THE CONTRACT, AND REQUESTED CONFIRMATION THAT NO LIQUIDATED DAMAGES WOULD BE ASSESSED. A FEW ITEMS OF SPARE PARTS WERE NOT REQUIRED TO BE DELIVERED UNTIL FEBRUARY 1, 1952. ON NOVEMBER 5, 1951, THE CONTRACTOR WAS ADVISED THAT THE QUESTION OF ITS LIABILITY FOR LIQUIDATED DAMAGES HAD BEEN REFERRED TO THE AEC LEGAL DEPARTMENT, AND ON NOVEMBER 19, 1951, IT WAS ADVISED THAT NO DAMAGES WOULD BE ASSESSED FOR EQUIPMENT DELIVERED ON OR BEFORE NOVEMBER 1, 1951, BUT THAT THE ITEMS HAVING A FEBRUARY 1, 1952, DELIVERY DATE WOULD CONTINUE TO BE SUBJECT TO THE LIQUIDATED DAMAGE PROVISIONS OF THE CONTRACT. ON MARCH 6, 1952, THE CONTRACTOR SUBMITTED A COMPLETE LIST OF ALL SPARE PARTS FURNISHED SHOWING THE DATES AND METHOD OF SHIPMENT. THIS LIST SHOWED THAT DELIVERY OF MOST SPARE PARTS HAD BEEN MADE DURING AUGUST 1951, BUT IT WAS FOUND, AFTER CONSIDERABLE DELAY, THAT THERE WAS NO RECORD SHOWING RECEIPT OF CERTAIN ITEMS LISTED BY THE CONTRACTOR AS SHIPPED.

THEREAFTER A QUESTION AROSE AS TO THE NUMBER OF CERTAIN ITEMS OF SPARE PARTS REQUIRED BY THE CONTRACT, AND THE CONTRACTOR WAS ADVISED ON JANUARY 6, 1953, THAT THERE WAS A SHORTAGE OF CERTAIN ITEMS. IT IS STATED IN THE GENERAL MANAGER'S LETTER OF MARCH 1, 1955, THAT, ALTHOUGH THE LANGUAGE OF THE CONTRACT WAS NOT SUFFICIENTLY SPECIFIC TO ELIMINATE REASONABLE DOUBT AS TO THE ACTUAL NUMBER OF THESE ITEMS CALLED FOR, THE CONTRACTOR ACCEPTED THE COMMISSION'S INTERPRETATION AND SHIPPED ADDITIONAL PARTS. THE VALUE OF THESE PARTS AMOUNTED TO LESS THAN ONE PERCENT OF THE TOTAL CONTRACT PRICE, AND IT MAY BE NOTED THAT THE CONTRACTOR HAD FURNISHED FREE SPARE PARTS NOT REQUIRED BY THE CONTRACT.

TWO QUESTIONS ARE PRESENTED. FIRST, WHETHER THE DELIVERY OF SPARE PARTS IN 1953 RESULTING FROM THE DIFFERENT INTERPRETATIONS PLACED ON THE CONTRACT REQUIREMENTS--- ADMITTEDLY AMBIGUOUS IN CERTAIN RESPECTS-- BY THE CONTRACTOR AND THE COMMISSION SHOULD MAKE THE CONTRACTOR LIABLE FOR LIQUIDATED DAMAGES, AND SECOND, WHETHER LIQUIDATED DAMAGES SHOULD BE ASSESSED FOR DELIVERY OF SPARE PARTS AFTER JUNE 17, 1951, BUT PRIOR TO THE DATE ( NOVEMBER 1, 1951) THAT INSTALLATION WAS REQUIRED TO BE COMPLETED. BOTH QUESTIONS ARE ANSWERED IN THE NEGATIVE.

THE CONTRACT TERMS APPEAR TO BE AMBIGUOUS AS TO THE EXACT NUMBER OF CERTAIN SPARE PARTS CALLED FOR, AND THE CONTRACTOR'S INTERPRETATION WAS NOT QUESTIONED BY THE COMMISSION FOR NEARLY A YEAR. THE VALUE OF THE PARTS DELIVERED IN 1953 WAS ABOUT $650, AND ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $50 PER DAY UNTIL THEY WERE DELIVERED WOULD MAKE THE CONTRACTOR LIABLE IN AN AMOUNT WELL OVER HALF THE TOTAL CONTRACT PRICE OF $60,149.86. UNDER SUCH CIRCUMSTANCES, ANY ATTEMPT TO COLLECT LIQUIDATED DAMAGES FOR THE PERIOD OF DELAY BY THE COMMISSION IN ADVISING THE CONTRACTOR OF ITS INTERPRETATION OF THE CONTRACT REQUIREMENTS WOULD UNDOUBTEDLY FAIL. SO FAR AS CONCERNS THE CONTRACTOR'S DELIVERY OF SPARE PARTS BETWEEN JUNE 17 AND NOVEMBER 1, 1951, IT IS APPARENT THAT THE CONTRACT REQUIREMENT FOR DELIVERY OF THESE SPARE PARTS IN 55 DAYS WAS INADVERTENTLY NOT EXTENDED WHEN THE PROCUREMENT WAS CHANGED FROM MERE DELIVERY OF THE SYSTEM TO INCLUDE BOTH DELIVERY AND INSTALLATION. OBVIOUSLY, THERE COULD BE NO NEED FOR THE SPARE PARTS BEFORE THE SYSTEM WAS REQUIRED TO BE INSTALLED. SEE PRIEBE AND SONS V. UNITED STATES, 332 U.S. 407.

FURTHERMORE, IN THE FINAL REPORT FROM THE DIRECTOR, DIVISION OF ENGINEERING AND CONSTRUCTION TO THE ASSISTANT GENERAL COUNSEL, DATED APRIL 2, 1954, IT IS STATED THAT THE DELAYS IN FURNISHING THE SPARE PARTS WHICH WERE NOT RECEIVED ACCORDING TO THE CONTRACT DELIVERY SCHEDULES WERE DUE EITHER TO THE DIFFERING INTERPRETATIONS OF THE CONTRACT REQUIREMENTS OR TO LOST SHIPMENTS, AS INDICATED BY THE DIFFERENCES BETWEEN THE CONTRACTOR'S SHIPPING RECORDS AND THE COMMISSION'S RECEIVING RECORDS. IN THE CIRCUMSTANCES, AND CONSIDERING ALSO THE REPORT OF THE COMMUNICATIONS ENGINEER OF THE COMMISSION DATED MAY 2, 1952, THAT, SUBJECT TO SETTLEMENT OF MINOR DISCREPANCIES IN INTERPRETATION OF THE SPARE PARTS REQUIREMENTS, AND CERTAIN CORRECTIONS,"IT IS CONSIDERED THAT THE GENERAL ELECTRIC COMPANY HAS COMPLIED WITH THE INTENT OF THE CONTRACT IN EVERY RESPECT," ASSESSMENT OF LIQUIDATED DAMAGES IS NOT REQUIRED.

AS REQUESTED, THE FILE ENCLOSED WITH THE GENERAL MANAGER'S LETTER OF MARCH 1, 1955, IS RETURNED.